Monopolistic Competition and Oligopoly
Are demand curves more elastic or inelastic for monopolistic competitive markets?
More elastic because there are more substitutes available. The closer the substitutes are to each other, the more elastic they will be.
cartel
a group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition.
monopolistic competition
a market structure determined by a relatively large number of sellers producing a differentiated product, for which they have some control over the price they change, in a market with relatively easy market entry
dominant strategies
a situation in which a particular strategy yields the highest payoff for a decision maker regardless of the other decision makers' strategy
collusion
a situation in which decision makers coordinate their actions to achieve a desired outcome. Collusion is generally used to achieve an outcome that would not be possible in the absence of coordinated actions, and it is typically associated with illegal or anticompetitive behaviors.
Nash Equilibrium
a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen
payoff matrix
a table showing the potential outcomes arising from the choices made by decision makers
Federal Trade Commission Act (1914)
an antitrust law that made unfair methods of competition and unfair or deceptive acts or practices illegal
Herfindahl-Hirschman Index (HHI)
an index of market concentration found by summing the square of percentage shares of firms in the market
antitrust laws
laws designed to prevent firms from engaging in behaviors that would lessen competition in a market
Clayton Act of 1914
prohibits mergers that would substantially lessen competition or create a monopoly, as well as some specific business practices such as price-fixing and tying contracts
excess capacity `
the underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes average total cost
oligopoly
A market structure in which a few large firms dominate a market. These producers are are price makers and behave strategically when making decisions related to the features, prices, and advertising of their products
mutual interdependence
A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect the other rivals to react to the change.
normal profit
The level of profit that occurs when total revenue is equal to total cost. This level indicates that a firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or compete in a different industry. Normal profit is also known as zero economic profit.
market share
percentage of a market accounted for by a specific entity
sherman act (1890)
the first antitrust law enacted in the US, which made "every contract, combination, or conspiracy in restraint of trade" illegal
economic profit
the level of profit that occurs when total revenue is greater than total cost
loss
the level of profit that occurs when total revenue is less than total cost
four-firm concentration ratio
the percentage of total industry sales accounted for by the top four firms in the industry
product differentiation
the strategy of distinguishing one firm's product from the competing products of other firms
game theory
the study of the strategic behavior of decision makers